By Fahad Usmani 59 Comments I never thought that risk and uncertainty are different terms until I started my PMP exam preparation and was going through the risk management knowledge area.
Managers who follow this approach analyze the size and nature of the risk involved in choosing a particular course of action. For instance, while launching a new product, a manager has to carefully analyze each of the following variables the cost of launching the product, its production cost, the capital investment required, the price that can be set for the product, the potential market size and what percent of the total market it will represent.
Risk analysis involves quantitative and qualitative risk assessment, risk management and risk communication and provides managers with a better understanding of the risk and the benefits associated with a proposed course of action.
The decision represents a trade-off between the risks and the benefits associated with a particular course of action under conditions of uncertainty.
These are considered to be one of the best ways to analyze a decision. A decision-tree approach involves a graphic representation of alternative courses of action and the possible outcomes and risks associated with each action.
Preference or Utility Theory: This is another approach to decision-making under conditions of uncertainty. This approach is based on the notion that individual attitudes towards risk vary. Statistical probabilities associated with the various courses of action are based on the assumption that decision-makers will follow them.
This may not be necessarily true as the individual might not wish to take the risk, since the chances of the decision being wrong are 40 percent.
The attitudes towards risk vary with events, with people and positions. Top-level managers usually take the largest amount of risk. However, the same managers who make a decision that risks millions of rupees of the company in a given program with a 75 percent chance of success are not likely to do the same with their own money.
Moreover, a manager willing to take a 75 percent risk in one situation may not be willing to do so in another. Similarly, a top executive might launch an advertising campaign having a 70 percent chance of success but might decide against investing in plant and machinery unless it involves a higher probability of success.
Though personal attitudes towards risk vary, two things are certain. Firstly, attitudes towards risk vary with situations, i. Secondly, some people have a high aversion to risk, while others have a low aversion.
Most managers prefer to be risk averters to a certain extent, and may thus also forego opportunities. When the stakes are high, most managers tend to be risk averters; when the stakes are small, they tend to be gamblers.CHASKALSON P: The two accused in this matter were convicted in the Witwatersrand Local Division of the Supreme Court on four counts of murder, one count of attempted murder and one count of robbery with aggravating circumstances.
They were sentenced to death on each of the counts of murder and to long terms of imprisonment on the other counts. As a member, you'll also get unlimited access to over 75, lessons in math, English, science, history, and more.
Plus, get practice tests, quizzes, and personalized coaching to help you succeed. The decision represents a trade-off between the risks and the benefits associated with a particular course of action under conditions of uncertainty. Decision Trees: These are considered to be one of the best ways to analyze a decision.
Uncertainty and risk are closely related concepts in economics and the stock market. The definitions of risk and uncertainty were established by Frank H.
Knight in his book, "Risk, Uncertainty, and Profit," where he defines risk as a measurable probability involving future events, and .
In , Congress enacted the Patient Protection and Affordable Care Act in order to increase the number of Americans covered by health insurance and decrease the cost of health care. Advances in Consumer Research Volume 3, Pages HEURISTIC SEARCH PROCESSES IN DECISION MAKING.
John W. Payne, University of Chicago [This research was supported by Research Grant MH from the National Institute of Mental Health.].